Buyer’s guide to health cash plans (May 2010)

Health cash plans are gaining popularity as a cheaper alternative to private medical insurance, but the boundaries between the two benefits are blurring, says Jennifer Paterson

Despite adversely affecting most of the UK workforce, the recession has actually resulted in increased demand from organisations for health cash plans. Once seen as the less popular cousin of private medical insurance (PMI), health cash plans are rising in popularity thanks to a low price tag and their growth as an employer-paid benefit. The Employee Benefits/Simplyhealth Healthcare Research 2009, published last June, found 14% of employers offered staff healthcare cash plans, a big rise from the 2% that did so in 2004.

Sue Weir, chief executive at provider Medicash, says: “Companies are looking for alternative ways to reward their staff for all their hard work and support during the recession. By investing in employee health and wellbeing, morale can be improved, as can retention and productivity, and absence levels reduced.”

Many organisations have had no choice but to impose pay freezes, but they are aware of the effect this can have on employees’ efficiency and mental wellbeing. Because of this, many employers have looked for ways to maintain or improve staff wellbeing during this time. Liz Price, national secretary of the British Health Care Association (BHCA), says: “There is a general feeling of optimism about opportunities in the corporate market, as employers continue to impose pay freezes and look to find low-cost ways of maintaining productivity and morale.”

As budgets have become increasingly tight, health cash plans have been seen to offer the right price tag. In some cases, cash plans have been used as a sweetener where employers cannot afford to offer PMI. Alternatively, employers can use health cash plans to complement PMI policies.

Share the cost with employees

Employers can fund cash plans themselves, share the cost with employees, or offer them on a voluntary employee-paid basis. Employees do not require a medical examination or GP referral to take up the perk and most claims are turned around within a few working days. Cover can be extended to include employees’ partners and dependants.

However, cash plans do have some downsides. Employees are limited to annual maximums for claims, so a plan may not always cover the cost of treatment. The higher level of cover an individual has, the greater the value of the annual maximum they can claim back. Employees can also choose to upgrade their level of cover at any time.

According to the Health and Care Cover – UK Market Report 2009 published by Laing and Buisson last June, about 4.72 million people, or 7.7% of the UK population, were covered by health cash plans at the end of 2008. Cash plans have long played a role in helping organisations to support their staff. Jill Davies, chief executive at Westfield Health, says: “The benefits that a cash plan can give an employer and employee, such as [providing] immediate access to therapy treatments for musculoskeletal problems, can still help to prevent a condition from becoming chronic and enable the employee to keep working through their problem or return to work sooner.”

Developing hybrid schemes

However, the line between health cash plans and PMI is becoming increasingly blurred as providers develop hybrid schemes. Geoff Barden, proposition and product manager, health at Axa PPP Healthcare, says: “We are going to get more of a blurring of boundaries between traditional cash plans and PMI. More elements of cash plans are becoming modular. [They cover] the whole of health, not just the treatment of conditions, but also maintenance-type benefits, ranging right up into PMI, so [the user] will get to start selecting in the future.”

Bespoke schemes, which are now also being used by smaller as well as large employers, can be a simple way of improving employee health and reducing absenteeism. Philip Wood, executive director of sales and marketing at provider Health Shield, explains: “In addition to helping reduce the number of people off work due to ill health, many organisations have also discovered that health cash plans can have a positive effect on staff turnover.”

The costs of tailor-made schemes vary depending on the number of employees an organisation wants to cover and the combination of benefits it includes. “More providers are raising the bar to create tailor-made packages to suit the needs of individual organisations,” says Wood. “The advantage of this kind of scheme is that it can be tailored to suit all budgets and business requirements.”

Going forward, further product development could continue to grow the market. Abby Bowman, communications manager at provider Simplyhealth, explains: “Cash plan providers are always looking at new product development, linked to the needs of the market. The drivers are for benefits to remain affordable enough for companies such as SMEs [small- and medium-sized enterprises] to consider viable, yet still have sufficient reward or payback for them to be valuable.”

As employers keep a close eye on budgets, health cash plans are likely to continue to evolve over the next year, with pricing and innovation playing an important role. Westfield Health’s Davies says: “Providers that continue to innovate and introduce new and improved plans that anticipate the changing landscape of the NHS and the PMI market will contribute to real growth in the cash plan market.

“There is certainly a great potential for the number of UK cash plan policy holders to grow significantly.”

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FOCUS ON FACTS

What are health cash plans?

Health cash plans provide cash lump sums towards a wide range of everyday health costs in exchange for relatively low premiums. The most popular benefits are dental and optical care, but other options include physiotherapy, consultations, diagnostics and employee assistance programmes (EAPs).

What are the origins of cash plans?

Health cash plans can be traced back to the 1800s, when they were set up to help people meet the costs of medical treatment. Plans were arranged through employers or churches, and people used to pay a penny for every £1 they earned. This was usually collected on Saturdays, when workers were paid, which led to the plan being called a Saturday hospital fund. With the arrival of the National Health Service, cash plan providers changed their constitutions to enable them to reimburse individuals for healthcare costs.

Where can employers get more information and advice about health cash plans?

Employer-funded health cash plans start at about 66p a week per employee, with the average being £1. Employee-paid schemes start at about £1.15 a week.

What are the legal implications?

Providing a health cash plan is not a legal requirement for employers, but it can help them fulfil duty-of-care obligations such as eyesight tests and glasses for VDU users and corporate drivers, and access to stress counselling.

What are the tax issues?

Cash plans are treated as a benefit-in-kind so are subject to tax and national insurance. Some employers have agreed income tax relief with HM Revenue and Customs on the duty-of-care elements of the cash plan to mitigate this.

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IN PRACTICE

What is the annual spend on health cash plans?

Laing and Buisson’s Health and Care Cover – UK Market Report 2009 showed the annual spend was up 4.3% to £510 million in 2008.